Posted by: danielfee | September 1, 2012

Taxes, Taxes, Taxes

Why won’t Willard “Mitt” Romney release his tax returns? Because how the current tax code benefits the top one percent is the discussion that must not be had before the November election, and Mr. Romney is the poster child for the top one percent. Starting way back in the Republican primaries, the other Republican candidates were demanding that he release his tax returns; but Mitt resisted. At the Republican debates when Romney was questioned about not releasing his tax returns, he began to dodge the question and the all-Republican crowd booed him loudly. But Mitt still resisted. After the general election began, the Obama campaign continued to push for the release of Romney’s tax returns. Numerous Republican politicians and political advisers also encouraged Mitt to release more than just his 2010 tax return and to do it early to get it out-of-the-way and out of the campaign narrative. Again, Romney resisted.

It is typically reported that Romney has released two years of tax returns, and Romney often states that he is following the John McCain precedent of releasing just two years of tax returns. There are a couple of problems with that defense for not releasing more of his tax returns. First, John McCain has been in the Senate for decades and was releasing his financial information on a regular basis and his two years of release were to catch up on the two most current years. Second, and more importantly, Romney has not released two years of complete tax returns. For 2011 Mitt has only provided an estimate since his accountants filed for an extension. So we are being asked to take Mitt’s word for it that his 2011 estimate is accurate. But even the 2010 tax return that he has released was not complete. There was at least one very important form that was omitted from the release. The missing forms are known as the 8938: Statement of Specified Foreign Financial Assets. This is the form where a person has to disclose to the IRS the value of all of the foreign accounts over which they have ownership or financial control. Oops; I guess the Romney’s just forgot to include their 8938 forms in the release of their 2010 tax return. Or they are intentionally trying to hide their foreign accounts? They released a total of 199 pages of their 2010 return and the portion of the return that was missing just happened to be the Statement of Specified Foreign Financial Assets. What do you think – accident or not?

Both Ann and Mitt Romney have said in numerous interviews that they have disclosed all “legally required” financial information. Ann Romney has been most forceful in her statements, stating that they have released all the information “you people need.” She has also said that they will not release any more tax returns (does that also mean they won’t follow through on releasing their 2011 return?) because it would just give people more “ammunition” to use against them. So the Romney’s know that there are things in their tax returns that might not go over well with the American people and that their opponents would point out and use against them.

Whatever this “ammunition” is, it must be really bad because why else would a presidential candidate endure the constant calls for release of their tax returns from both Republicans and Democrats and still refuse to do so? The one year that was partially released, 2010, showed that the Romney’s paid less than 14% in federal income taxes on $21,646,507 in adjusted gross income. By comparison, the average middle class person pays around 24% in federal income tax.

Last month Senate majority leader Harry Reid said he received a phone call from a former Bain Capital (Mitt’s old company) investor who told him “Harry, he cannot release his tax returns because he didn’t pay any federal taxes for ten years.” Mitt Romney claimed this is not true, but still he didn’t release the tax returns to prove it. Then Mitt said that he went back and looked at his returns and stated “we have not paid less than 13% in taxes in any year.” But again, Romney has not released any information to back up this claim. All the evidence that Romney believes the American people need before the election is to trust him. But I have a question. When Romney said “not less than 13% in taxes” did he mean federal income taxes? I have noticed that in all of Mitt and Ann’s statements they always refer to “taxes” in the generic form. To achieve the 13% threshold are they including other taxes such as payroll taxes, property taxes, state and local taxes and property taxes? We don’t know, because Mitt will not release the information that is needed to verify his claim. We are expected to “trust him” because he would never lie about the information on his tax return. But his history proves otherwise.

Back when Romney was running for governor in Massachusetts he also asked the voters to “trust him” on his state tax returns. Romney claimed that he had filed his Massachusetts tax returns in 1999 and 2000 as a resident of the state. This was important because without those two years counting towards his residency he would not qualify to run for governor. But in 1999 he had moved to Utah to head the Olympics and claimed to have his permanent residence in Utah in order to obtain a $54,000 tax break on his property taxes. After the Boston Globe broke the story and pressed the issue, Romney contradicted his prior claims and admitted that he did not file as a Massachusetts resident in 1999 and 2000; after which he went back to amend his tax returns so he could claim that he was a Massachusetts resident for the seven years necessary to run for governor. So Mitt Romney is asking the American people to “trust him” when he tells us, but refuses to show us, what is in his tax returns. What do you think; should we just trust him?

There is a lot of speculation about what “ammunition” might be found in the Romney’s tax returns. Did they pay 0% in any year, as Harry Reid suggested? Did they take advantage of the tax amnesty that the IRS provided for people who had Swiss Bank accounts that were not reporting them on their tax returns? Did he use off-shore corporations, bank and investment accounts to avoid paying taxes in America? Maybe, but without the release of the tax returns none of this speculation can be confirmed. But one thing that we can be absolutely certain of is that if Mitt Romney releases his tax returns it will result in a discussion about tax policy that the Romney campaign and the top 1% do not want to have. Even though we no longer see the Occupy Wall Street movement in the streets, the underlying theme of this election is still the 99% versus the 1%. The Romney tax returns would become exhibit “A” in the discussion of how the tax code has been manipulated for decades to increase the income and wealth of the top 1% while the middle class and poor have been struggling to keep their heads above water. The Romney campaign has been trying to avoid any discussion of this subject and when someone broaches the subject they are immediately accused of “class warfare.” Instead the Romney campaign and Republicans in general will claim that the “entitlement” programs such as welfare, food stamps, Medicare and Medicaid, Social Security and unemployment insurance are the real problem. So they want to direct the discussion towards them instead of the broken tax system. Of course it would also be very difficult to justify Romney’s proposal to cut taxes even further (which would be another big benefit to the top 1%), if the voters understood how the current tax system is so tilted to the benefit of the top 1%. This is the discussion that must not be had before the election if Romney has any hope of winning.

I have read and heard from many people who are self-identified as middle class that will say something to the effect that they are frustrated and tired of their hard-earned tax dollars being given away as welfare to people who are too lazy to get a job. This seems to be one of the biggest complaints. But why does this argument resonate with so many middle class voters, when what people receive in assistance is a relatively small amount of a few hundred dollars per month in contrast with the large dollar amounts that the wealthy and corporations receive, mostly through tax breaks and loopholes but in some cases in direct handouts like the bank bailouts? Why do those in the middle class look down at those who are poorer than them and getting a small amount instead of looking at those who are much richer that are getting large amounts? I have developed a few potential theories on why this might be the case.

First, I have no doubt that for some it is a racial issue because they view the assistance provided to the poor today the same as the “welfare queen” driving a Cadillac argument we heard back in the 1980’s. This type of argument evokes a certain type of racial stereotyping. But I don’t think this theory applies to the majority of the frustrated middle class. Second, I wondered if it came down to a psychological issue of fear versus hope; meaning people fear that they are drifting towards becoming poorer themselves and are afraid they may need the same assistance one day, which really bothers them. So instead they prefer to hope that they will become one of the rich and will be able take advantage of all those tax breaks and handouts the wealthy receive. Or third, is it because it is just more visible to see someone getting a check or debit card versus a tax credit which only shows up on someones return that we never see? Or is it that people don’t really understand that the rich are getting these, what I would call handouts, because they don’t even know they exist? Did you know that Mitt Romney was able to take a $77,000 tax deduction in 2010 for his wife’s dancing horse? He said it was her hobby but took it as a business deduction.

So I began to ask people who said they “were tired of their tax dollars being given away to those people who were too lazy to get a job” what the basis was for their opinion. Of course no one would fess up to it being a racial issue. Also, nobody seemed to think it was a psychological issue of fear versus hope. Almost every response that I received was in one way or another about visibility. Programs like welfare, unemployment insurance and food stamps are highly visible to most people. Even if they don’t know someone personally on one of these programs, they still see it all around them. But all of the ways that corporations and the wealthy receive their government handouts are buried in a very complicated tax system, so they are not visible to most people.

There also seems to be a significant misunderstanding about how programs like welfare, unemployment insurance and food stamps work. Take unemployment insurance for example. Lately this program tends to get lumped in with what critics “government handouts.” However, this is an insurance program, not a handout. Insurance premiums are paid, typically by the employers, so that in the event an employee is laid off or fired (but not if they quit) the employee will receive a temporary benefit which is a small percentage of their previous pay to bridge the gap until they can find their next job. This is the essence of an insurance plan, where a premium is paid on a regular basis which results in the payment of a benefit if a certain predefined event occurs. It is the same principle that applies to Social Security Insurance (SSI) and Medicare insurance. However, the critics of these insurance programs have been successful in redefining them as “entitlements” which has become a pejorative term.

Welfare aid, renamed Temporary Assistance for Needy Families (TANF) in 1996, is also widely misunderstood. The first misunderstanding is that people seem to believe that someone can collect welfare for a lifetime with no need for the recipient to work. This is false. TANF requires a recipient to be working within two years of receiving benefits and it has a five-year lifetime cap on assistance. The second big misunderstanding is the actual number of people who receive welfare through the TANF program. There seems to be this generic belief that it a big percentage of the population, while in reality it is only 1.4% of the total U.S. population. The average total number of recipients for 2011 was 4,363,000 people. This translates to 1,845,638 families. Of the total number of recipients in 2011, 3,280,037 were children. Do we really want those lazy 3.28 million children to get off their butts, drop out of school and get jobs? One other common misconception is that the number of people on welfare has significantly increased since Obama became president. In 2005 the total number of recipients was 4,468,966 people. It did drop during the years of the housing bubble, 2006-08, but then returned to 4.4 million by 2010 after the housing bubble popped. Since the economy has seen a slow recovery, the number of recipients dropped slightly in 2011.

Since the start of the “great recession”, the use of the food stamp program, officially known as Supplemental Nutrition Assistance Program (SNAP), had increased significantly. In 2005, before the housing bubble exploded, the average number of participants in SNAP was 25.6 million people. For 2011 the average number of participants rose to 44.7 million people. The states which saw the greatest increase in participation rates were those that were hit hardest by the housing market crash such as Nevada up 130.4% and Florida up 111.3%. Interestingly, other hard hit states like California and Arizona saw more modest increases of 65.4% and 70.1%, respectively. Oddly, Idaho was up 128.18% and Utah was up 111.6%, even though these states were not hit especially hard by the housing market collapse. When you break down the participants in the SNAP program by age, what you find is that 46.6% are children (0-17), 9.7% are elderly (60+) and of the 45.6% of non-elderly adults (18-59) almost two-thirds of them are women who are mostly stay at home moms taking care of their pre-school and school-aged children. To even qualify for SNAP assistance the applicants gross monthly income cannot exceed 130% of the poverty level and the net take home cannot exceed 100% of the poverty level. The poverty level for a family of four is a little over $22,000 per year. That is a net take home of just $1,838 per month. By comparison the median income for a four-person household is $68,274. Once they meet all of these eligibility requirements the average monthly benefit per person is $133.85 per month. That is a whopping $4.40 per day. Most of the people I have spoken with say they have no problem with providing aid to the truly needy, but it is those other lazy people who should get off their butts and go to work. The question is, who are these “others”? I doubt that they are referring to the children or elderly. Most rational people don’t believe that we should return to child labor or force grandma and grandpa to go back to work in their senior years. Also, most people agree that the disabled are truly needy. I would also venture to say that most people would say that a single stay at home mom would fall into the needy category. When we subtract these groups out of the total participants, what we have left is 9.7% that are non-disabled adults in childless households. That works out to around 4.3 million people, which is just 1.4% of the total U.S. population.

So it makes one wonder when a politician uses language to invoke feelings that your hard-earned money is being taken from you in taxes and given to the “others”, what is it they are really trying to convey in their message? This is where many people begin to see racial undertones in the message that is being sent. But interestingly under the SNAP program, 35.7% of recipients were white, 22.0% were African-American, 10% were Hispanic and the remainder were others or the information on race was missing. Under the TANF program, 31.2% of recipients were white, 33.3% were African-American and 28.8% were Hispanic. So the welfare and food stamp programs are split relatively evenly between races. So is the underlying message being sent racial or meant to stoke class warfare between the middle and lower class? Or a little of both?

But why if it is only the bottom 1.4% who are receiving welfare (TANF) and the bottom 14.3%, the vast majority of which are children, disabled and seniors who are receiving SNAP benefits, have these programs that provide assistance to the poor during hard economic times become such a large issue in this upcoming election?

Why? Because this election will be all about taxes. Sure they like to say it is about jobs and the economy. But the Bush tax cuts of 2001 and 2003 are due to expire at the end of this year. The Romney plan not only calls for a permanent extension of the Bush tax cuts but proposes another round of tax cuts mostly benefiting the top income earners, which will cost an estimated $5 trillion dollars over 10 years, as a way to stimulate the economy and grow jobs. But in order to not increase the national debt he proposes to slash other spending so as to make the new tax cuts revenue neutral. Since Romney has said cuts in defense spending are off the table, this means the cuts will be coming from other domestic spending programs like SNAP and TANF. Obama has proposed extending the tax cuts for the first $250,000 of income for everyone and above that amount income would be taxed at the old Clinton tax rates. So it comes down to an argument of tax cuts for the top 1% versus spending cuts for the bottom 1.4%. We can’t do both, unless we decide to add both on to the national debt.

So just how much does Mitt Romney want to avoid talking about his tax returns and the current tax code in general? Since he named Paul Ryan as his choice for Vice President, the main topics of discussion have been Medicare, abortion and rape! He has also attempted to get welfare into the discussion by running absolutely false advertisements stating that Obama has removed the work requirement from welfare. And on a recent campaign stop Mitt Romney even went into “birther” territory by cracking a joke while he was in Michigan, the state where both he and his wife were born, saying that “nobody has ever asked for my birth certificate.” Of course not Mitt; you are a rich white guy! Why would the “birthers” question your Americanism? But many of us have been asking for you to release you tax returns. So I guess that makes us “taxers.” Of course you won’t release your tax returns, because they would show how the current tax code benefits the top 1% and this is the tax discussion you don’t want to have before the election.

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Responses

  1. Excellent post. I especially appreciate your pointing that out about John McCain and his Senate financial disclosures because I feel that that distinction has gotten lost in the shuffle. I think (hope) I pointed it out in at least one of my posts about Mitt’s taxes. Another example of the media not doing their job consistently. I think most voters hear Mitt released two years, McCain released two years, and they think it’s all good. Actually, it’s quite rotten.

    • Thanks, I also wanted to point out that it is a small percentage of the population that is receiving welfare, but the argument that we most often hear from Republicans is that “those people who are too lazy to work are getting handouts from their hard earned money.” I think the political argument is who is getting more of the middle class’s hard earned tax dollars; the 1.4% on welfare or the top 1% and corporations.

      • Definitely the latter. And people don’t realize that the tax code “redistributes” to wealthy families and corporations.

      • Yes, whenever some gives me the class warfare argument about redistributing the wealth I point out to them that any government policy (under any form of government) will result in a redistribution of wealth. And what they need to decide is if they want it distributed up to the top or down to the middle class. I think the policies after WW2 that distributed it down and built a strong middle class resulted in making America an economic superpower. At that point they usually try to change the subject.

      • I would say made us an economic, political, and military superpower. The destiny of this country is inextricably interwoven with that of the middle class.
        It’s amazing how people don’t get that something like “carried interest” is redistribution, really stupid redistribution. When you point it out, people have a Homer Simpson “Doh” moment.


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